Q&A with Scott Segal on New Mercury MACT Rule

December 21, 2011

1. Is Utility MACT likely to be a costly rule in terms of jobs?Answer: Utility MACT will undermine job creation in the United States in several different ways. It will result in retirement of a significant number of power plants and either fail to replace that capacity or replace it with less labor-intensive forms of generation. It will increase the cost of power, undermining the international competitiveness of almost two dozen manufacturing industries, and it will reduce employment upstream in the mining sectors. All told, it is anticipated that the rule will result in the loss of some 1.44 million jobs by 2020. While some jobs are created by complying with the new rule, the number and quality of those jobs is far less than those destroyed. We estimate that for every one temporary job created, four higher-paying permanent jobs are lost. The bottom line: this rule is the most expensive air rule that EPA has ever proposed in terms of direct costs. It is certainly the most extensive intervention into the power market and job market that EPA has ever attempted to implement.

2. EPA says the benefits of the rule greatly outweigh the costs. Is that true?Answer: Unfortunately no. Most of the benefits EPA claims to the rule come from reducing soot emissions. But EPA also is on the record saying that most of these soot benefits come in areas already achieving the Agency’s prescribed standards for soot. EPA has said that soot emissions in those areas are already so low that they pose no threat to human health and the environment, even for very susceptible populations. Therefore, the rule is expected to have almost NO incremental health benefits over and above what current law is achieving. Recently, former OMB official and current George Washington University expert on regulatory affairs Susan Dudley wrote that the rule likely has no real benefit and is so costly that it will actually undermine public health. See http://thehill.com/blogs/congress-blog/energy-a-environment/200539-epas-risks-outweigh-rewards-for-new-mercury-rule

3. EPA is announcing its rule at a children’s health facility – does that mean it has an impact on children’s asthma?Answer: No. There is no direct relationship between today’s action and children’s asthma. EPA has reported that “between 1980 and 2010…total emissions of the six principal air pollutants dropped by 67 percent.” See http://epa.gov/airtrends/aqtrends.html#comparison. Over this same period – as soot (or particulate matter) emissions have fallen sharply, childhood asthma rates have increased – likely as a result of better-insulated homes or other indoor exposures. The broader strain on treatment facilities from the rule is evident. With respect to treatment costs, it is important to note that U.S. hospitals spend $8.5 billion annually on energy, often equaling between one and three percent of a hospital's operating budget. Additionally, EPA estimates, in the U.S., the health sector is the second most energy-intensive commercial sector. Under Utility MACT and interstate rules, energy costs are estimated to increase 23.5% over the next decade. Hospital administrators will have no choice but to pay attention to the cost of energy as these surging energy costs will squeeze hospital budgets like never before. Without adequate power supply, built upon a foundation of stable and cost-effective coal-fired generation, the healthcare sector and the American public can expect rapidly increasing costs that consumers can ill-afford. A real threat to the control of asthma symptoms, however, is the availability of lower cost, over the counter epinephrine inhalers, which regulators citing the Clean Air Act will be pulling off the shelves on December 31 – making the cost of addressing asthma symptoms go up by a factor of three. See http://news.heartland.org/newspaper-article/2011/12/07/banning-epinephrine-inhalers-fda-making-it-harder-breathe

4. There are public health “experts” present with EPA. Doesn’t that add credibility to their claims?Answer: You can’t be sure. The American Lung Association has been paid some $20 million by the EPA over the past ten years. Then, at events like this one, the ALA stands up and defends EPA rules – or even buys advertisements on EPA’s behalf. See http://www.canadafreepress.com/index.php/article/40175. Given that ALA’s endorsement of the final Utility MACT was offered before they could have possibly reviewed EPA’s work, their views must be met with some skepticism. Indeed, seven physicians that serves in the US House of Representatives wrote the EPA Administrator complaining that EPA’s rule has few health benefits and may even injure public health due to its high costs and impact on employment. For a copy of that letter, see http://burgess.house.gov/UploadedFiles/09222011_Letter_to_Lisa_Jackson.pdf

5. Not all utilities oppose the rule. Why is that?

Answer: Some power companies have business models that allow them to charge more for the power they provide as the wholesale clearing price for energy increases – even if they are spending no more money on compliance with new regulations. For these companies, the more expensive environmental regulations are for their competitors in other regions, the higher the clearing price will be, and the more money they will make. Somewhat perversely, this economic reality gives these companies a motive to support the most expensive and least flexible EPA rules – provided they fall primarily on their coal-fired competitors. For a description of this, including quotes from earnings calls, see http://online.wsj.com/article/SB10001424052748704694004576019730082447432.html

6. EPA says that it has ensured greater flexibility in the Utility MACT rule now. Why isn’t that enough?Answer: While we are still reviewing it, at first blush, the final rule appears to be pretty close to the proposed rule, which is unfortunate. The rule suffers from statistical errors, inaccurate technological assumptions, and inadequate economic and reliability analysis. Given that the rule is one of the most expensive air rules ever, the American public deserves better. As for relying solely on EPA to grant discretionary amounts of additional time, that can be dangerous from a planning and reliability perspective. As the nation’s grid operator – the NERC – observed, it is better to address the timing and scope of the regulation at the front end.

7. Do the states support EPA’s actions?Answer: At least from a reliability perspective, most do not. Concern with reliability is widely shared by some 27 states as reflected in briefs filed in the deadline case regarding Utility MACT, letters from governors, and rulemaking comments filed by public service commissioners and other state officials. For example, attorneys general representing half the states noted that Utility MACT “has the potential to undermine significantly the reliability of our Nation’s electrical supply and significantly increase the cost of electricity to the consumer.” Amer. Nurses Ass’n v. Jackson, Civ. No. 1:08-CV-02198-RMC. Of particular interest are the views of state public utility commissions – the frontline for reliability concerns – around the nation. The Pennsylvania Public Utility Commission found that the rule “could lead to expensive upgrades at greater cost to ratepayers or premature retirement of fossil units which could compromise system reliability.” The Public Utilities Commission of Ohio wrote to EPA that, “The current and foreseeable economic environment indicates that Ohio’s ratepayers will be hard-pressed to absorb rate-shock due to the implementation schedule advanced in the proposed rule.”

I am sure you will have other questions for me or for my colleague Jeff Holmstead, a former EPA Air Administrator. Call me at the numbers below, or check in with Frank Maisano to find us at 202-828-5864 or 202-997-5932.